For financial professionals only
Consequences of Covid: the impact on generations
The coronavirus outbreak has drawn stark lines between generations. Older people are categorised amongst the most vulnerable, and many are suffering loss, ill-health, and loneliness. But the impact of the virus has been felt strongly across other age groups, too. And the true costs to the economy, society and our future generations will only be known in time.
In this series, we will explore the likely long-term financial impact for people at different stages of life, and where their advice needs will lie in years to come.
Will our children be the long-term victims of Covid-19?
The UN estimates that globally over half a billion people under the age of 18 have lost access to education, diminishing their prospects. Not only have they lost out on building invaluable social skills at school, but many of those with most to gain have not been able to access online learning. With no or limited access to the internet, a home computer, or parents who are willing or able to help, there’s been a rapid rise in the number of primary age children ‘out of school’. You can see this in the chart below.
Though this is a temporary situation, we can’t tell what the long-term cost of this disruption will be. A gap in young people’s education may compound the lagging productivity growth that has been evident in the western world since the Global Financial Crisis of 2008/9.
The school of hard knocks
A less visible threat to our children’s futures lies in the amount of debt being taken on by governments around the world. While necessary given the extraordinary circumstances, ultimately, this means borrowing growth from a later date. We will have to pay for it at some point, and likely through more than just tax rates. It will be the young who end up shouldering most of this burden over many years to come.
This is a further blow to the personal finances of a generation who pay higher tuition fees than any previous generation for higher education, leaving university heavily burdened by debt1. And that’s if they even get their university place of choice. Many of this year’s cohort of sixth form and college students had their university dreams dashed by this year’s A-Level results debacle, as courses were filled before the results decision was reversed. This generation will also have to work later in life before they can access state pension provision2. And as defined benefit schemes become extinct and life expectancy continues to rise, they’ll have to hope their retirement savings last as long as they do.
Our social care system is already broken, so for the youth of today who may not have the benefit of home ownership to make equity release from, or similar lined up as their Plan B in later years, the picture looks bleak.
The only thing more expensive than education is ignorance
While financial education in schools has finally crept onto the curriculum in recent years, a term spent playing catch up may push it back down the agenda.
It falls to us financial service professionals to stress to a younger generation the importance of remaining opted-in to auto-enrolment schemes, to save for a rainy day, and to ensure they have adequate income and illness protection.
As the saying goes, ‘give a man a fish and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
References
[1] Wikipedia.org 2020. Tuition fees in the United Kingdom – 2020 [online] Available at: https://en.wikipedia.org/wiki/Tuition_fees_in_the_United_Kingdom, [Accessed 03 September 2020].
[1] Statista.com 2020. Average student loan debt on entry to repayment in England from 2000 to 2019, by repayment cohort – 2020 [online] Available at: https://www.statista.com/statistics/376423/student-loans-england-average-debt-on-entry-to-repayment-timeline/, [Accessed 03 September 2020].
[2] Gov.uk 2020. Proposed new timetable for State Pension age increases – 2020 [online] Available at: https://www.gov.uk/government/news/proposed-new-timetable-for-state-pension-age-increases, [Accessed 03 September 2020].
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.